Natural gas rebounds as U.S. cold outbreak spurs heating demand

Natural gas (NYMEX:NGH14) rebounded in New York from the lowest level in more than two weeks as wintry weather over most of the U.S. stoked heating-fuel demand.

Gas rose 2.2% as Commodity Weather Group LLC predicted a strong cold outbreak across the central and eastern states in the next five days, with some of the lowest Midwestern readings since January 2009. Winter storm warnings and weather advisories stretch from Illinois to Maine with blizzard conditions forecast for parts of the Northeast later today.

“This is the coldest start to the New Year that we’ve seen in many, many years,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago. “It doesn’t look like it’s getting better anytime soon and that should be supportive to natural gas.”

Natural gas for February delivery rose 9.1 cents to settle at $4.321 per million British thermal units on the New York Mercantile Exchange after dropping to $4.213, the lowest intraday price since Dec. 17. Trading volume was 27% below the 100-day average as of 2:52 p.m. Gas is up 34% from a year ago.

The premium for February contracts versus March narrowed 1.2 cents to 2.5 cents. March gas traded 11.3 cents above the April contract, compared with 8.8 cents on Dec. 31. The market was closed yesterday for the New Year’s holiday.

Options Trading

March $4 puts were the most active options in electronic trading. They slid 0.9 cent to 10.3 cents per million Btu on volume of 801 at 3:03 p.m. Calls accounted for 66% of trading volume.

A blizzard warning has been issued for New York’s Long Island, southeastern Massachusetts and Cape Cod through tonight into tomorrow because high winds and heavy snow could create “whiteout conditions,” the National Weather Service said.

Boston may get 14 inches (36 centimeters) of snow before the storm ends tomorrow, while 4 to 8 inches are forecast for New York and 3 to 7 for Philadelphia, the weather service said.

Temperatures will be below normal across the eastern half of the lower 48 states through Jan. 11, said Commodity Weather in Bethesda, Maryland. The high in Chicago on Jan. 6 will be minus 2 Fahrenheit (minus 19 Celsius), 34 below normal, according to AccuWeather Inc. in State College, Pennsylvania.

Gas Use

About 49% of U.S. households use gas for heating with the biggest consumers in the Midwest, Energy Information Administration data show. The heating season from November through March is the peak demand period for the fuel in the lower 48 states.

U.S. inventories probably fell by 117 billion cubic feet last week, based on the median of 16 analyst estimates compiled by Bloomberg. Estimates ranged from declines of 103 billion to 143 billion.

The EIA, the Energy Department’s statistical arm, releases its stockpile report at 10:30 a.m. tomorrow in Washington. Supplies fell 126 billion the same time last year and the five- year average drop for the period is 121 billion.

“There is a little concern the drawdown isn’t going to be as big as the previous ones, but it will probably be the smallest one for some time,” given colder weather since then, Flynn said.

Gas supplies declined at almost twice the normal pace in the first six weeks of the heating season, dropping 763 billion cubic feet to 3.071 trillion as of Dec. 20, EIA data show. A stockpile deficit to the five-year average widened to a record 9.2% from a surplus of 1.5% at the start of November.